Question

Describe the normative measurement theories proposed in the 1960s and 1970s as alternatives to historical cost accounting. Discuss the effectiveness of these theories in improving accounting measurement.

Answer 1

This theory are those that seek to inform you what should be normal, acceptable or best practice. they are not at all concerned about what is currently happening or in predicting what will happen in the future. All normative theories are concerned with is what should be happening now,

Normative accounting is a branch of accounting theory that is concerned with the differences between different accounting systems and the ways in which one system might be better than another. Normative accounting theorists tend to advocate not only for a standardized system of accounting, but also for a particular system that is thought to be superior to others. Those who study normative accounting seek to understand the objectives of accounting in practice and compare its ability to meet those objectives with other systems. Normative accounting theory is generally more prescriptive than other ways of approaching accounting theory.

How it developed

Normative therories represent person or group of people's opinion on what is the best way to do thing. The theory is offered for public review either in academic publications or in commentary within acounting associations.

This might sound simplistic, but it is not Normative theories often involve complex logic and reasoning, based on extensive historical Research.

Is it valid to claim that what has worked in the past would work in future, or even should be done now? This is a Problem with normative therory.

Normative therories such as the conceptual framwork represent the work of lots of smart people interviewing experienced accountatants and investors. The conceptual framwork codifies what has been found in the profession to represent "Best practice"

Normative valuation theories represent some peoples idea on what investor need and how to acheive it.

The most direct opposite of normative thoriy is positive theory

Positive therory is interested in what is actually happening and predicting what will happen in the future given a specific scenario. It is not interested in whether this should be what happen it make no value judgement over right or wrong

positive theory is objective, evidence and scientific in its approach.

Challenges:-

Normative accounting theory is subject to considerable critique from accounting and business professionals. According to the VentureLine online accounting dictionary, "theorists tend to rely heavily upon anecdotal evidence (e.g., examples of fraud) that generally fails to meet tests of academic rigor," thus suggesting challenges in developing a set of accounting concepts that could be considered objectively superior to another. Fearing its conclusions were nonscientific, accounting theorists tended to shift away from normative accounting after the "normative period," from 1956 to 1970.

Alternatives

Normative accounting exists in contrast to other forms of accounting theory. In positive accounting theory, for example, theorists tend to develop accounting principles and concepts according "to a more scientific methodology of explaining and predicting the practice," rather than working to develop a more ideal system of accounting, according to Meditari Accountancy Research. In the view of some researchers, accounting has no unified theory that describes an objective system, outside of how it is used by an individual firm, investor or government.

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